---
content_hash: c56ee36bfffb00a44c94134f468680b54a69edc02995917795c33a25621970b4
doc_type: methodology
effective_date: 2026-07-02
family: red-total-return-index-red-tr-methodology
notion_last_edited_time: "2026-06-22T22:53:00.000Z"
notion_page_id: 3834b2ae-644d-80f0-aeae-fe1c4fd4168e
slug: red-total-return-index-red-tr-methodology
status: published
template: methodology
title: RED Total Return Index (REDTR) Methodology
version: v0.1
---
# RED Total Return Index (REDTR) Methodology
**Adjacent Markets, Inc.**
Version 1.1
## Table of Contents
1\. Executive Summary
2\. Index Overview
3\. Universe Definition
4\. Data Sources
5\. Weighting Methodology
6\. Index Calculation
7\. Index Maintenance
8\. Governance
9\. Risk Factors and Limitations
10\. Changelog
11\. Approvals
12\. Legal Notices and Disclaimers
## 1. Executive Summary
The RED Total Return Index (REDTR) is a total return index that measures the performance and cumulative return of maintaining long Republican exposure. That is, exposure to Republican political power and sentiment over time. It is calculated using event contract prices and resolved outcomes across U.S. election categories. I.e., U.S. party-line election event contracts across Presidential, Senate, House, Gubernatorial, and Mayoral election categories.
REDTR is Adjacent’s [RED Index](https://adjacent.markets/static/red/methodology) as a total return index. The RED index measures forward-looking Republican political power and sentiment levels on a bounded scale using current market prices with 100 acting as the neutral baseline (i.e., >100 = bullish Republican, <100 = bearish Republican). The key distinction is that RED aggregates probabilities to measure forward-looking power and sentiment projections whereas REDTR compounds the returns from Republican party-line election event contracts over time.
REDTR inherits from the RED index’s category structure, constituent eligibility, weighting rules, maintenance schedules, and governance processes, unless noted otherwise. However, REDTR is a strategic total return index that measures cumulative performance and compounds the returns of a basket of Republican event contract exposures, selected and weighted using the RED index.
Unlike RED that uses 100 to represent political neutrality (i.e., 50% weighted Republican probability), REDTR is initialized at a 100 base value with a set base date from which measurement starts. If REDTR climbs from 100 to 125, that implies that RED exposure strategy has generated a 25% cumulative return from its base date. Conversely, if REDTR falls from 100 to 75, the RED exposure strategy has lost 25% from its base date.
REDTR exists to track cumulative returns from being long RED political power and sentiment over time. It may also support downstream use cases, including derivatives such as perpetual futures.
[Adjacent Markets, Inc. is the acting Index Sponsor, Calculation Agent, and governance authority of the REDTR index](https://adjacent.markets/governance). The Adjacent Index Committee (AIC) is responsible for REDTR methodology design and interpretation, constituent eligibility and treatment, corrections, restatements, and both material and non-material methodology changes.
## 2. Index Overview
### 2.1 Objective
The goal of REDTR is to measure cumulative performance of market-priced Republican power and sentiment through time. It is a notional, rules-based, unlevered collection of Republican election contracts derived from the RED index. The contracts are packaged to maintain long exposure to Republican party U.S. election event contracts.
The distinction between RED and REDTR is important. RED is a forward-looking measure of Republican power and sentiment using event contract prices while REDTR measures cumulative return from long RED exposure. For instance, there could be two dates in which the RED measurement is the same, but different for REDTR. E.g., RED might return to a 105 level following a volatile election cycle, while REDTR may be materially above or below its previous level. This depends on Republican event contract returns or losses as the contracts roll into the next election series.
### 2.2 Index Name and Ticker
- **Index name:** RED Total Return Index
- **Short name:** REDTR
- **Index family:** U.S. Politics > Party Composite
- **Index type:** Total-return / strategy reference index
- **Base value:** 100.00
- **Calculation unit:** cents for contract-price and resolution-value purposes; index values are unitless
- **Target exposure:** Long Republican U.S. election event-contract exposure
### 2.3 Design Principles
**RED-aligned:** REDTR inherits from the RED index’s category structure, constituent eligibility, weighting rules, maintenance schedules, and governance processes, unless noted otherwise.
**Return-based and path-dependent:** REDTR compounds contract returns over time. It represents a rules-based, rebalanced, long strategy of Republican exposure. REDTR preserves realized gains and losses. After an election contract resolves, its returns or losses are recognized and remain embedded in REDTR even after the index rolls forward into the next series of election event contracts.
**Unlevered:** REDTR does not apply leverage, borrowing, or financing considerations unless explicitly introduced through future governance-driven methodology changes.
**Transparent:** REDTR’s methodology is optimized for transparency and the ability for anyone to easily reproduce calculations and weights.
### 2.4 Relationship to RED
REDTR inherits from the RED index universe, but it is not a replacement. RED is bounded by design and can theoretically range between 50 and 150, with 100 acting as a neutral political baseline. Conversely, REDTR is a total-return index derived from the RED basket of event contracts that has a base value of 100 from which positive and negative returns compound. Unlike RED, REDTR is theoretically unbounded through compounding and cannot fall below zero under normal methodology assumptions.
Methodology changes made to RED may affect REDTR given the inherited relationship. Any material changes to RED’s methodology should be considered when interpreting the potential impact on REDTR.
### 2.5 Target Users and Use Cases
REDTR may be useful for:
- **Derivative exchanges** that seek to offer long Republican exposure through financial instruments.
- **Institutional investors and funds** to evaluate Republican risk exposure and momentum.
- **Market makers and traders** who seek to have a benchmark, hedge, or arbitrage underlying Republican party election event contracts across prediction market and derivative exchanges.
- **ETFs and ETPs** evaluating investible exposure to the performance and cumulative return of maintaining long Republican exposure.
- **Researchers and media** to compare and assess political signals with long-term Republican exposure and cumulative returns.
A liquid REDTR financial instrument has the potential to benefit market makers, hedge funds, and other financial institutions who want to trade REDTR exposure against its underlying event contracts. This may help with market efficiency as it could provide more liquidity and tighter spreads, especially for the long-tail markets.
## 3. Universe Definition
### 3.1 Eligible Universe
REDTR’s eligible universe is the same as RED’s eligible universe unless otherwise noted in this methodology. Constituents include Republican party-line markets across U.S. election event contracts in the following categories:
- U.S. Presidential elections
- U.S. Senate elections, including regular and special elections
- U.S. House of Representatives elections, including regular and special elections
- Gubernatorial elections in U.S. states and territories
- Mayoral elections in major U.S. cities, both partisan and non-partisan elections
Markets are only eligible for REDTR if they are eligible for RED and have valid price histories necessary to calculate returns for calculation intervals.
### 3.2 Eligible Contract Criteria
A contract is eligible for REDTR when it:
1. Represents a binary outcome tied to a U.S. election
2. Is Republican aligned under the RED methodology
3. Falls within one of the five eligible RED office categories (i.e., Presidential, Senate, House, Gubernatorial, and Mayoral election categories)
4. Has been admitted to the RED constituent universe through the RED screening process
5. Has a valid bid and ask except where an official resolution value is being used for the final return calculation interval
6. Accounts for RED’s midpoint price quality screen, ensuring the bid/ask spread does not exceed the threshold
7. Has not yet been removed from the RED universe. However, a contract that has resolved in RED must have its return recognized in a REDTR calculation interval before it can be removed
8. Has a non-zero start price at the top of an interval. This is necessary because percentage returns cannot be calculated from a zero denominator
### 3.3 RED Universe Inheritance
REDTR inherits RED’s inclusion and exclusion criteria, including:
- The 48-hour evaluation period after initial listing
- Weekly AIC screening reviews to identify newly listed and eligible markets that should be added to the RED composite index
- RED’s Constituent Threshold (described in Section 3.7 of RED’s methodology) requiring that Senate, House, Gubernatorial, and Mayoral category indices must have at least five eligible constituents in order to be included in the RED composite calculation
- Removal upon resolution. Again, a contract that has resolved in RED must have its return recognized in a REDTR calculation interval before it can be removed
- Exclusion of stale markets with probabilities that have been at 0.0% or 100.0% for more than 72 consecutive hours
- Exclusion of markets that have been suspended or delisted by the exchange
- Instances where ambiguous classification, non-partisan Mayoral election markets, or known data quality issues require AIC discretion
- RED’s midpoint price quality screen and the constituents that are included or excluded as a result
- RED’s handling of non-partisan or candidate-level Mayoral elections in which party candidate values are aggregated with a 100% cap
REDTR should never independently include a contract that RED excludes unless explicitly approved by the AIC.
### 3.4 Category Treatment
REDTR uses the same fixed category index weights to represent Adjacent Markets' view of the relative importance of each office category in the greater context of the U.S. political landscape.
| Office Category | Target Category Weight |
| --- | --- |
| Presidential | 40% |
| Senate | 30% |
| House | 20% |
| Gubernatorial | 8% |
| Mayoral | 2% |
| **Total** | **100%** |
In the event the RED index excludes a non-Presidential category index because the Constituent Threshold described in Section 3.7 is not met, REDTR will apply the same treatment that RED does. I.e., remaining active category indices will absorb the weight across the remaining active category indices using the normalized weighting process described in Section 5.1 of RED’s methodology. Additionally, where RED caps a non-partisan Mayoral party sum at 100%, REDTR applies the same cap used in the return calculation.
### 3.5 Presidential Constituent Swap
REDTR inherits the RED methodology’s pre-approved Presidential constituent swap rule. The Presidential category index will use the party-line presidential winner market before Republican and Democratic presidential nominees have been identified. After Republican and Democrat nominee markets have been resolved, the AIC may swap the party-line market for the Republican nominee individual election winner market at the next scheduled screening review.
For REDTR, this swap is treated as a constituent replacement or roll. It is not an additional return event. In other words, the outgoing party-line market’s price return in the basket is recognized up until its final calculation interval. Then, the incoming Republican nominee individual election winner market begins contributing returns after it has been assigned a REDTR weight at the start of the next approved interval calculation.
### 3.6 Special Elections and Replacement Markets
Special elections are eligible for REDTR under the same treatment as RED.
When a resolved contract is removed, the next contract in that series may enter REDTR if it is available and satisfies RED’s inclusion criteria. If the next contract in the series is not available, the remaining eligible constituents and category indices absorb the weight according to RED’s methodology described in Section 3.6.
## 4. Data Sources
### 4.1 Primary Pricing Source
REDTR uses Kalshi event contract prices as the primary pricing source just as RED does.
**Price type used:** Mid price, calculated as:
```
Mid Price = (Best Bid + Best Ask) / 2
```
Kalshi’s binary event contracts, per contract, are priced between $0.00-$1.00, but REDTR expresses contract prices in cents on a 0.0 to 100.0 scale for calculation purposes. The price reflects the probability of the event occurring based on the underlying trading activity. E.g., an event contract trading at 63 implies a 63% win probability for the Republican candidate.
RED is currently composed only of Kalshi’s underlying CFTC-regulated event contracts, which include a broad collection of U.S. election contracts. For non-partisan Mayoral election markets, candidate party affiliation is sourced from Ballotpedia. Population data is sourced from census.gov. Adding additional platforms is a potential future enhancement, subject to Governance review.
The mid price is used only when it satisfies the price-quality screens articulated in RED.
### 4.2 Published Values and Optional Official Valuation Timestamp
REDTR may publish one or more layers of calculations:
- **Intraday reference value:** A near real-time REDTR value that is calculated every 60 seconds
- **Official daily value (optional):** Adjacent Markets, Inc. may choose to publish REDTR official daily close values at a designated valuation time.
### 4.3 Resolution Data
REDTR recognizes outcomes at official contract resolutions or determinations, not later settlement dates. This is done to ensure REDTR is current as there may be gaps between resolutions and settlement dates.
### 4.4 Data Quality and Fallbacks
Data quality and fallback considerations include the mid-price quality screen and 4 hour hold and then exclude treatment for wide-spread or one-sided books (described in RED Section 4), the Stale Contract Treatment (described in RED Section 6.5), the Outlier Quotes treatment (described in RED Section 6.6), and the halt treatment for exchange outages or per-market halts (described in RED Section 7.4). REDTR requires additional considerations because it is return-based:
- Constituent is excluded under RED’s data-quality rules:
- If start price denominator is zero or missing
- A contract is halted or suspended unless the AIC decides otherwise (e.g., using last valid approved mid price for short halt)
- Bid/ask spreads exceed the threshold specified in the RED methodology
- Bid/ask is not reliable (e.g., stale price)
- REDTR additional considerations:
- REDTR will continue to include a constituent market in its calculation that hasn’t officially resolved even if it has already moved to near-certain levels (e.g., 99%). The market is removed after the official resolution value has been published and used in the final calculation interval
- If a prior price for a constituent market is corrected after a return has already been calculated, the AIC may determine whether the correction is material under its [Corrections and Restatements Policy](https://adjacent.markets/static/corrections-restatements-policy) which may result in recalculation and republication of affected REDTR intervals. Non-material corrections may be handled in forthcoming calculation intervals
- Constituent additions, removals, and weight changes are introduced and used in the index calculation at the start of the next calculation interval, never at a mid-interval unless specified by the AIC
Similar to RED, if the price for a constituent is unavailable, the AIC may choose to hold the last valid price, exclude the constituent, suspend publication of the index value, or apply another form of AIC-approved treatment consistent with its governance framework.
## 5. Weighting Methodology
### 5.1 Category Weights
REDTR inherits RED’s fixed category weights:
| Office Category | Weight |
| --- | --- |
| Presidential | 40% |
| Senate | 30% |
| House | 20% |
| Gubernatorial | 8% |
| Mayoral | 2% |
| **Total** | **100%** |
Category index weights are fixed. They reflect Adjacent Markets' view of the relative importance of each office category in the greater context of the U.S. political landscape. They may be changed only through the applicable governance process.
### 5.2 Within-Category Constituent Weights
REDTR uses the same weighting methodology for constituents as RED. Factors that go into constituent weighting include:
| Factor | Default Score | Applies To |
| --- | --- | --- |
| Volume Sensitivity | 7 / 10 | All categories |
| Time to Expiration Sensitivity | 6 / 10 | All categories |
| Population Sensitivity | 5 / 10 | House, Gubernatorial, Mayoral only |
**Standard formula** (House, Gubernatorial, Mayoral, includes Population Sensitivity):
```
marketWeight = (volumeScore × volumeSensitivity + timeScore × timeSensitivity + populationScore × populationSensitivity) / 3
```
**Modified formula** (Presidential and Senate, no Population Sensitivity):
```
marketWeight = (volumeScore × volumeSensitivity + timeScore × timeSensitivity) / 2
```
**Score construction:**
Each factor score is expressed on a **0–1 scale**. Volume and population are proportional to the largest value in the category (the busiest / most-populous constituent scores 1.0); the time score is an absolute function of days to resolution.
- *Volume score*: the constituent's lifetime/cumulative trading volume divided by the largest lifetime volume among constituents in the same category, `volume_i / max(volume)` (busiest constituent = 1.0)
- *Time score*: `max(0, 1 − days_to_resolution / 1460)`, a linear decay over a 1,460-day (4-year) horizon, so a market resolving today scores near 1.0 and one four or more years out scores 0 (closer to resolution = higher score, as the market signal is generally more accurate). A constituent with no resolution date scores 0.5; one already past its resolution date scores 0.1.
- *Population score*: the constituent's jurisdiction population divided by the largest jurisdiction population in the category, `population_i / max(population)` (most-populous constituent = 1.0)
Market weights within a category are normalized to sum to 1.0 after calculation.
RED’s weighting methodology can be referenced in Section 5.3.
### 5.3 Effective Constituent Weights
Constituent REDTR effective weights are calculated as:
```
Effective Weight_i,t = Active Category Weight_c,t × Normalized Within-Category Weight_i,t
```
Where:
- `i` is the constituent contract.
- `c` is the office category containing constituent `i`.
- `Active Category Weight_c,t` is the category weight after any active-category normalization.
- `Normalized Within-Category Weight_i,t` is the constituent’s normalized weight within its category.
Constituent market weights are normalized and sum to 1.0 across the active REDTR index for each calculation interval.
For non-partisan Mayoral races where we aggregate the candidate values described in Section 6.5, the aggregate sum of candidate values is treated as a single REDTR constituent. The candidate contracts that make up the aggregate sum do not receive separate REDTR weights.
### 5.4 Weight Timing for Return Calculation
Weights are fixed at the beginning of each calculation interval. They are then updated at the next calculation interval every 60 seconds. E.g., weights at 12:00 are used to calculate returns from 12:00 to 12:01. The weights are then updated and those new weights are used in the next 12:01 to 12:02 interval. With this approach returns are separated from reweighting events as a constituent price movement during a calculation interval is what drives the return. Resulting weight changes when they occur only impact exposure moving forward for future intervals. They do not retroactively change previously calculated values.
### 5.5 Rebalancing and Reinvestment Convention
REDTR operates under the assumption that gains and losses in a long Republican strategy remain embedded in the index and are reinvested at each calculation interval. Today, REDTR does not represent the actual performance of an investable fund or portfolio. This is because REDTR may diverge from a fund’s performance as a consequence of transaction costs, bid/ask spreads, slippage, settlement delays, fees, financing costs, taxes, and liquidity constraints in the underlying event contracts.
## 6. Index Calculation
### 6.1 Base Date and Launch Initialization
REDTR is initialized at a base value of 100.00 on an official base date and base timestamp. REDTR’s constituents will consist of RED eligible constituents at the time of the base timestamp. The REDTR constituents will use the RED prices and weights in the first calculation interval which takes place immediately after the base timestamp. It is important to note that no return is calculated for periods prior to the base timestamp.
When new constituents are admitted after the base timestamp, they are used in forthcoming calculations. They do not impact prior calculation periods.
Constituents begin contributing only after they have been admitted to the RED universe and have valid interval prices and weights that can be used in calculating REDTR.
### 6.2 Core Formula
REDTR updates by compounding the weighted return of the underlying RED constituents:
```
RED_TR_t = RED_TR_{t-1} × (1 + Portfolio_Return_t)
Portfolio_Return_t = Σ Effective_Weight_i,t-1 × Contract_Return_i,t
Contract_Return_i,t = (Price_i,t - Price_i,t-1) / Price_i,t-1
```
Where:
- `RED_TR_t` is the REDTR value at time `t`
- `RED_TR_{t-1}` is the prior REDTR value
- `Effective_Weight_i,t-1` is constituent `i`’s effective weight at the start of the return interval
- `Price_i,t-1` is constituent `i`’s start-of-interval approved mark
- `Price_i,t` is constituent `i`’s end-of-interval approved mark
E.g., assume the prior REDTR value is 100.00 and the index has three constituents at the start of the return interval:
| Constituent | Start Effective Weight | Start Price | End Price | Contract Return |
| --- | --- | --- | --- | --- |
| A | 50% | 40.0 | 44.0 | 10.0% |
| B | 30% | 60.0 | 57.0 | -5.0% |
| C | 20% | 25.0 | 30.0 | 20.0% |
The weighted portfolio return for the calculation interval is:
```
Portfolio_Return_t = (50% × 10.0%) + (30% × -5.0%) + (20% × 20.0%)
Portfolio_Return_t = 5.0% - 1.5% + 4.0% = 7.5%
```
The new REDTR value is therefore:
```
RED_TR_t = 100.00 × (1 + 7.5%) = 107.50
```
Again, new weights affect only the next calculation interval so as to separate reweighting events from constituent price movements.
### 6.3 Price Convention
Prices are expressed in cents on a 0.00 to 100.00 scale. E.g., a contract with a mid price of 64 cents has a REDTR calculation price of 64.00:
```
Price_cents = Price_decimal × 100
```
### 6.4 Resolution Treatment
REDTR recognizes a contract’s final value following official resolution from the exchange. If a constituent resolves to YES, its final value is 100.0 cents. If a constituent resolves to NO, its final value is 0.0 cents.
```
Contract_Return_i,t = (Final_Value_i - Price_i,t-1) / Price_i,t-1
```
After a constituent contract has officially resolved, Price_i,t is set to Final_Value_i at the next scheduled calculation timestamp. The final YES/NO outcome is then captured through the return formula in Section 6.2.
### 6.5 Non-Partisan Mayoral Return Treatment at the Race Level
For non-partisan or jungle primary Mayoral elections where RED aggregates multiple Republican candidate contracts, REDTR treats each election at the race level as a single return position instead of using separate candidate-level return positions.
The price is calculated as the sum of eligible Republican candidate contract prices, capped at 100.0 cents. This is consistent with RED.
```
Price_race,t = min(100.0, Σ Price_candidate_j,t)
```
This aggregate value for non-partisan or jungle primary Mayoral elections is then used in calculating the standard REDTR return formula:
```
Race_Return_r,t = (Price_race,t - Price_race,t-1) / Price_race,t-1
```
At official resolution, the race-level final value is set to 100.0 cents if any eligible Republican candidate wins and 0.0 cents otherwise.
If an aggregate price at the non-partisan or jungle primary Mayoral election level is zero, missing, unreliable, or it fails RED’s price quality screen, the race is excluded from REDTR for the impacted interval. It may, however, be escalated to receive exceptional treatment from the AIC under RED governance.
### 6.6 Resolution Day Example
Let’s assume a contract has a 25% weight and at the start of the interval a price of 92.0 cents. If it officially resolves YES at 100.0 cents during the interval:
```
Contract_Return = (100.0 - 92.0) / 92.0 = +8.70%
Portfolio Contribution = 25% × 8.70% = +2.17%
```
If the same contract resolved NO, the calculation would be:
```
Contract_Return = (0.0 - 92.0) / 92.0 = -100.00%
Portfolio Contribution = 25% × -100.00% = -25.00%
```
The resolved contract’s return is recognized, it is then removed from the index, and rolls into the next eligible contract in the series if it is available per RED’s methodology.
### 6.7 Zero Start Price Handling
If a constituent’s start price at the beginning of a calculation interval is exactly zero it is excluded from the calculation interval’s return. If a contract resolves to zero from a start price greater than zero, it can be calculated normally. This has the potential to result in a -100% return. In either scenario, the AIC may approve exceptional treatment.
A constituent may contribute returns in forthcoming calculation intervals when it has a valid and eligible non-zero start price.
Adjacent Markets, Inc. and the AIC will monitor constituents that have near-zero values as they can create very large percentage returns from small price movements.
### 6.8 No Smoothing
REDTR values are not smoothed. This is because it is intended to measure the actual compounding returns of a long RED or Republican strategy. RED on the other hand does use smoothing to reduce short-term noise.
### 6.9 Index Floor and Upside
REDTR is a long-only and unlevered index. It therefore cannot fall below zero and its upside is not capped as positive returns can compound over election cycles.
If REDTR were ever to reach exactly zero, Adjacent Markets, Inc. would treat this as an extraordinary event and suspend official publication of values until the AIC determines whether to terminate, restart, or amend the methodology.
## 7. Index Maintenance
### 7.1 Update Schedule
| Component | Frequency |
| --- | --- |
| Constituent prices | Refreshed every 60 seconds |
| Intraday REDTR reference value | Refreshed every 60 seconds |
| Official REDTR close | Adjacent Markets, Inc. may choose to publish REDTR official daily close values at a designated valuation time |
| Constituent weights | Refreshed every 60 seconds |
| New market screening | Weekly review, consistent with RED |
| New market inclusion | After RED eligibility and evaluation requirements are satisfied |
| Resolved market return recognition | At official resolution or approved methodology resolution event |
| Resolved market removal | After resolution return is recognized |
### 7.2 New Market Addition
If new constituents are added to RED, they may enter REDTR at the next calculation interval if they have an assigned weight and satisfy RED’s price quality screening considerations.
### 7.3 Market Resolution and Roll
REDTR recognizes the final return of a constituent only once when it resolves. It then removes the resolved contract and rolls into the next contract in the series if it is available and eligible. REDTR will preserve the resolved contract’s return or loss before rolling. As noted in Section 6.5, for non-partisan or jungle primary Mayoral elections where candidate values are aggregated at the race level, recognition occurs at the race level rather than separately for each party candidate contract.
### 7.4 Reweighting
REDTR constituent weights are calculated at each 60 second calculation interval. Weight changes do not create returns, but are instead used in the calculation of follow-on calculation intervals as discussed in Section 5.4. Returns as a percentage are only derived from the price movements of the underlying constituents or when final values are recognized at contract resolution.
If a constituent is removed outside of the normal schedule (e.g., exchange halt, stale mid price, etc), the AIC should document its removal and monitor how its weights are absorbed by the remaining eligible constituents.
### 7.5 Market Disruptions
REDTR inherits from RED governance when it comes to outages, halts, API failures, and data quality issues that prevent the calculation of a valid constituent return. For brief disruptions, Adjacent Markets, Inc. may hold the most recent valid price, delay or suspend publication, or publish indicative values.
In certain circumstances, the AIC may determine that exceptional treatment is required.
### 7.6 RED Eligibility and Exceptional Treatments
REDTR inherits from the RED constituent universe when it comes to inclusion, exclusion, resolution, stale markets, market disruptions, classification issues, exceptional treatments, etc. In the event RED removes or excludes a constituent from the calculation, REDTR applies the same corresponding treatment prospectively unless otherwise approved by the AIC. Historical REDTR returns are unchanged unless corrected or restated under the [Corrections and Restatements Policy](https://adjacent.markets/static/corrections-restatements-policy).
### 7.7 Corrections and Restatements
Adjacent Markets, Inc. evaluates errors under its [Corrections and Restatements Policy](https://adjacent.markets/static/corrections-restatements-policy) if an input price, weight, constituent classification, resolution, or calculation is later found to be incorrect. Error analysis should evaluate both direct impact to current values as well as downstream implications given REDTR’s compounding returns path.
## 8. Governance
### 8.1 Index Sponsor and Calculation Agent
Adjacent Markets, Inc. takes on Index Sponsor and Calculation Agent roles and responsibilities for REDTR. Outcomes and decisions around calculations, screening, maintenance, and operations are performed by Adjacent.
For REDTR, these responsibilities include:
- Calculating REDTR values and maintaining constituent, weight, price, and resolution records
- Monitoring data quality, price-quality screens, market disruptions, resolution events, rolls, and calculation incidents
- Escalating methodology, calculation, or data integrity issues to the AIC where required
### 8.2 Adjacent Index Committee
The AIC is responsible for overseeing this methodology, how it is interpreted, how it is maintained, necessary corrections, and other governance considerations. The AIC is governed by the [AIC Charter](https://adjacent.markets/static/aic-charter).
For REDTR, AIC oversight includes REDTR-specific issues such as:
- Return calculation
- Resolution recognition
- Roll treatment
- Calculation incidents
- Official publication
- Production use vs indicative values
Routine implementation of this methodology does not require separate methodology change approvals.
### 8.3 Meeting Schedule
The AIC meets at least quarterly. Further, the AIC has additional meetings and written consents on an as-needed basis when it comes to methodology-related considerations.
AIC reviews may be initiated for the following:
- Material methodology changes
- Market classification issues or questions
- Data quality issues
- Corrections or restatements
- Market disruptions
- Complaints
- Major election events
- Other circumstances that may affect index integrity
- REDTR-specific calculation, resolution-recognition, roll, or official-publication issues
### 8.4 Methodology Changes
Any methodology changes are governed by the [Adjacent Index Methodology Change Policy](https://adjacent.markets/static/methodology-change-policy). Material changes generally require the following:
- Written proposal
- Impact analysis
- AIC approval
- Appropriate stakeholder consultation
- Advance notice where required
- Publication of updated methodology documentation.
For REDTR, potentially material changes may also include modifications to the inherited RED universe or category structure, return formula, resolution recognition, rebalancing, smoothing, caps, financing, transaction-cost assumptions, official close timing, correction thresholds, or use of non-Kalshi or multi-venue pricing sources.
Non-material clarifications or administrative updates may be approved and reported to the AIC as the next regularly scheduled meeting.
### 8.5 Conflicts of Interest
The AIC is responsible for ensuring that methodology decisions are made on the grounds of index integrity. Decisions should never, under any circumstances, be based on the economic interests of Adjacent Markets or products that reference REDTR.
For REDTR, potential conflicts may include Calculation Agent decisions, affiliated entities, production use, or products that reference REDTR. Potential conflicts should be disclosed, logged, and managed under Adjacent governance policies.
## 9. Risk Factors and Limitations
### 9.1 Path Dependency
REDTR depends on the sequence of compounding returns, resolutions, and rolls which make it path-dependent as noted in Section 2.3. Conversely, RED is not path-dependent and instead measures market-priced Republican exposure at any given point in time. Therefore, RED values can correspond to different REDTR values.
### 9.2 Different Interpretation from RED
Unlike RED, REDTR does not measure baseline political neutrality at 100. Instead, a REDTR value of 100 means the index is at its base value as of its base date. I.e., consumers of REDTR should not interpret it as a direct probability measure.
### 9.3 Liquidity Risk
It may be the case that a percentage of the underlying event contracts that make up REDTR are illiquid or have wide bid/ask spreads. Mid prices can be noisy in the context of returns when the underlying constituent order books are thin.
The mid price quality screen is intended to reduce this risk, but it does not entirely eliminate it.
### 9.4 Low-Price Return Volatility
Underlying constituent contracts that have low prices have the potential to generate large percentage returns from small absolute price movements. This can result in meaningful REDTR volatility, especially around elections or when contract prices have reached near certainty.
### 9.5 Resolution and Roll Risk
The timing of official contract resolutions causes unresolved contracts to transition into final YES/NO outcomes as well as initiates rolling into the next series of contracts. This can materially affect index values.
### 9.6 Data Source Dependency
REDTR depends on the availability and quality of event contract data from the exchange. Events such as API outages, market halts, corrections, etc. may affect REDTR.
### 9.7 Regulatory Risk
Political event contract markets are subject to regulatory risk. I.e., changes in law, regulation, exchange permissions, or enforcement posture may affect availability of underlying REDTR constituent markets.
### 9.8 Category Concentration Risk
REDTR inherits from RED’s category weights. This includes the 40% weight for the Presidential category. The Presidential category is represented by a small number of constituents and is therefore sensitive to price movements, resolutions, and potential data issues with Presidential election contracts.
### 9.9 Backtesting Limitations
Meaningful backtesting of RED across multiple election cycles is currently very limited. Users should not rely on short-window backtests as evidence of predictive validity.
### 9.10 Product and Oracle Design Risk
A derivative or an oracle feed that references REDTR may apply price clamps, funding-rate constraints, circuit breakers, or other market structure controls. However, such controls are outside the REDTR methodology.
### 9.11 No Transaction Cost Assumption
REDTR is a reference index. It does not deduct transaction costs, exchange fees, slippage, taxes, financing costs, borrow costs, or operational expenses. Actual investable products may perform differently.
## 10. Changelog
| Version | Date | Changes |
| --- | --- | --- |
| 1.1 (no version change) | July 6th, 2026 | Non-substantive documentation correction. Corrected the Section 5.2 inherited constituent-weighting description to match the production calculation: factor scores are on a 0–1 scale (Volume and Population each proportional to the category maximum, not a 1–10 relative ranking) and the Time score is a linear decay over a 1,460-day (4-year) horizon (`max(0, 1 − days_to_resolution / 1460)`; 0.5 when a market has no resolution date, 0.1 once past resolution), not an inverse-of-days figure. No REDTR return-calculation methodology or historical values changed. |
| 1.1 | July 2nd, 2026 | Removed the Impact Sensitivity factor from the inherited constituent-weighting factor table (Section 5.2), matching RED's v1.4 methodology update: Presidential/Senate constituent weights are now a 2-factor blend of Volume and Time-to-Expiration; House/Gubernatorial/Mayoral weights are a 3-factor blend adding Population. REDTR's own return-calculation formulas (Section 6) are unaffected — only the inherited within-category weighting in Section 5.2 changes, consistent with RED's Section 5.3. AIC approved these changes on July 2nd, 2026. |
| 1.0 | June 2026 | Initial publication. Methodology established for REDTR Index, inherited from the parent RED prediction market composite index. |
## 11. Approvals
| Role | Name | Signature | Date |
| --- | --- | --- | --- |
| Chief Executive Officer | | | |
| Chief Operating Officer | | | |
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